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Leave Mandates Would Cost Businesses Over $1 Billion Annually

February 10, 2014

During this Legislative Session, lawmakers in the House of Representatives considered two bills that would require employers to offer paid leave to workers.

HB 1313 would require employers with 5 or more employees to pay employees for 5, 7 or 9 days of sick leave per year, depending on the size of the company. This bill passed the House and will now be considered by the Senate.

HB 2238 would require employers with more than 24 employees to offer up to three weeks of paid vacation for employees that work an average of 20 hours per week. This bill did not survive the committee cut-off and is considered dead this session.

Although one of the bills is dead this session, it is instructive to understand how much these paid leave mandates would cost employers.

According to the Bureau of Labor Statistics, the average cost to an employer for paid sick leave is 25 cents per hour per employee. The average cost for paid vacation is a steeper $1.02 per hour. Taken in isolation, one might think those numbers seem reasonable.

Lawmakers may think they’re being generous by forcing employers to change personnel policies (after all, it doesn’t cost public budgets a dime), and that it won't cost businesses too much, but looking at the numbers in aggregate, those seemingly negligible costs add up quickly.

There are 2,669,256 employees who work for companies with 5 or more employees in our state. Nationally, 39% of private-sector workers do not receive paid sick leave. So just over 1 million workers would benefit from the paid sick leave bill. Assuming those workers clock the national average of 1,700 hours per year, multiply by $.25 per hour, and the annual cost to employers in our state for paid sick leave would be a staggering $442 million.

There are 1,713,831 workers in Washington businesses with 25 or more employees. Nationally, 23% of private-sector workers do not receive paid vacation, so that would be approximately 394,181 Washington workers who might benefit from the paid vacation mandate. Assuming the national average of 1,700 hours worked per year, multiply by $1.02 per hour, and the cost to employers in our state for paid vacation leave would be a mind-boggling $684 million every year.

Taken together, that would be an increase in the cost of doing business in Washington State of more than $1.1 billion per year.

Of course, employers cannot simply absorb an extra $1.1 billion every year. They will be forced to shift costs back on to workers, eliminating non-mandated benefits (such as undesignated leave) and reducing hours, and to consumers, in the form of increased prices.

There is a reason only one other state, Connecticut, mandates paid sick leave, and why no state mandates paid vacation. It is because such mandates increase the cost of doing business. And most states are loath to increase costs on their job creators, especially when economies and employment are still lagging from the Great Recession.

Washington should be especially wary, as our new business start rate has declined while our failure rate continues to increase. In 2010, Washington ranked 9th in business starts and 11th in closures. In 2011 (the most recent year data is available), Washington slipped to 12th for new business starts and 7th for closures. So entrepreneurs are opening fewer businesses, and more of them are failing, as compared to other states.

Other states are doing a better job at fostering a positive business climate than Washington on the heels of the recession, as we are moving the wrong way in both rankings. Adding $1.1 billion per year in labor costs to our state’s job creators is not the way to reverse this disturbing trend.